With two-thirds of 2019 now over, the overall cryptocurrency market remains in a tepid state. Aside from Bitcoin’s mid-year rally, not a whole lot has happened. The long-anticipated big bull market has failed to materialize.
So far this year, we’ve seen a roughly 113% rise in Bitcoin (YTD), a 26% rise in ETH (YTD), a 32% decrease in XRP (YTD), a 50% rise in BCH (YTD), and a 51% rise in EOS (YTD). Most of the other small-cap altcoins have been sluggish, but there have been a few star performers.
To identify the small-cap tokens that have performed well this year, we analyzed the ERC-20 tokens issued on the Ethereum blockchain. For this analysis we selected the top 1,000 ERC-20 tokens by market cap, and then excluded the tokens and stablecoins with a market value of more than $1 billion, leaving a total sample of about 900 projects.
We studied these tokens from multiple dimensions, including price, YTD return rate, transaction volume, number of addresses holding tokens, market cap, and the percentage of tokens held in the token’s top 20 addresses. That final metric, which we call the concentration level of token distribution, excludes exchange addresses and other addresses that might hold large sums for technical reasons, like addresses that receive coins to be destroyed.
Among the tokens we analyzed, we found 12 with a market value over $100 million, 81 between $10 million and $100 million, and 813 tokens with under $10 million in market cap. From the perspective of return rate, more than half of the tokens have shown a negative return rate, while just 38 tokens had an ROI of over 500%. (Note: this analysis was performed before Bitcoin’s latest downswing, so the ROI numbers for many of these tokens may look worse now if they’ve followed the market trend).
Most of those 38 tokens with phenomenal returns have a rather high concentration level of token distribution. In fact, for most, this level is beyond 60%, with some even exceeding 90%, meaning that 60% to 90% of the total token value is held in the top 20 addresses.
Of course, the return rate of a token is not directly correlated with its token distribution. But we believe that usually, tokens that have smaller market caps have more concentrated token distributions, making it easier for the issuer (or other major players) to manipulate the price.
We also found, however, that some of the large-cap tokens also saw an incredibly high rise in value. For example, the market cap of LINK is about $600 million, and its annual ROI is close to 10x with a concentration level of 66%. INO has a market cap of $370 million, and its annual return rate is more than 26x. INO’s concentration level of token distribution is also very high, at 88%.
We studied the correlation between price, annual return rate, transaction volume, number of addresses holding certain tokens, market value, and concentration level of token distribution.
The chart on the left describes the correlation of all factors for all 900 tokens, while the one on the right shows the correlations all factors for tokens with a market value of less than $10 million.
As can be seen from the left chart, there is apparently a correlation between the return rate and market value and trading volume, but the concentration level of token distribution doesn’t seem to be correlated with ROI, with a correlation of only 0.076 (on a scale of zero to one).
However, when it comes to tokens with a market value of less than $10 million (the right-side chart), the correlation between the remaining attributes and the return rate becomes weaker, and the correlation between the return rate and concentration level of token distribution has increased.
This suggests that for small-cap tokens, the more concentrated a token’s distribution is, the more likely that token is to generate high returns.